Tiaris talks a billion dollar game

Avi Kliger and Rami Kopelman decided "to do something together", but they didn't know exactly what. The Cedar Fund, which invested $2.5 million in them at pre-seed and seed, wasn't sure either.

They called their company Tiaris, but the meeting that gave birth to the decision took place at Metalink (Nasdaq: MTLK). Tiaris CTO Avi Kliger was chief scientist at Metalink, one of the first people at the company. He left Metalink shortly after its IPO in early 2000. He says, "There was no special reason. I grew up with Metalink since it was a start-up, but it wasn't mine." Tiaris CEO Rami Kopelman joined Metalink in 1995, and his last position was VP international sales.

Kopelman praises Cedar Fund's model, "The model's principle was 'take the money and together we'll figure out what to do'. The central concept of the entrepreneur is to create something that has a big enough market so that one day we can talk about a billion dollar exit."

"Globes": A $1 billion exit? That belongs to the era of 1999, doesn't it? Today, it is usual to talk about a billion dollars without mentioning the word 'exit'.

Kopelman: "Nevertheless, we're talking about a $1 billion exit."

Kopelman and Kliger considered a range of ideas before settling on communications components, focusing on their physical attributes. Kopelman says, "Ultimately, a product is defined by the customers' needs. And so, we wandered around among potential customers, before the seed investment, in order to get feedback about the product we would develop and guarantee that they would recognize us when we finally had a product in hand. You can call this pre-development marketing, but it's the right way to go when you are developing something new. You don't want to find yourself in a situation where your solution and the customers' needs don't intersect. We learned this trick at Metalink, which developed its products together with its future customers so that when tenders were published in which it could participate, the company was already a known entity in the market."

Kliger: "We also learned that it is also worthwhile to talk with the customers' customers, since they are the ones for whom the product must be suitable. They are the most important people in this chain, even though they don't pay us directly."

Before discussing exactly what Tiaris does, an introduction about the "networked home" is in order. The broadband hook-up for residential homes, and the multiplicity of PCs in each home, creates a need for an Internet hook-up between computers. In the "second generation", expected to arrive in the next few years, an increasing number of appliances will be networked between themselves and will have Internet-based added value in the form of interactive television, online music and information and the like. In order to simplify the hook-up, a central connection box is needed to gather and retransmit the information to the different appliances. After all, the last thing we want is to watch the video we ordered on the microwave.

Existing solutions are focusing on various kinds of "boxes". Set-top boxes, which until now have been used for television broadcasts, are now being used as an anchor for all informational; residential gateways are not defined as solely television-oriented, but are designed as an a kind of information portal for the whole house. The information has to reach the appliances, which is where the "no new wires" solutions come in. The idea is to eliminate the need for the ordinary citizen to have to wire up his home. Solutions include using existing electrical and telephone wires and wireless systems such as Bluetooth and 802.11b.

Tiaris makes communication system-on-chip solutions that will be located in a single box, whether set-top boxes, residential gateways or whatever the industry comes up with. Like Marvell (Nasdaq: MRVL) and Zoran (Nasdaq: ZRAN), Tiaris plans to remain a fabless company, and handle production through subcontractors, with whom the company is already holding preliminary talks.

"Unquestionably, the main demand for home networking will be video. Existing solutions do not transmit acceptable quality video," says Kliger. "When you transfer information between two computers via ethernet protocol, 1 Mbps is sufficient, because the information is broken down into packets that do not have to arrive in the same order, while the protocol sorts them out. With video, it is not possible to skip a packet, or insert a different packet in the middle, so solutions have to offer quality of service allowing streaming at 3-6 Mbps in order to maintain quality viewing. The rate will increase to 20 Mpbs in the era of HDTV."

3-6 Mbps does not yet exist, i.e. there isn't yet broadcasting over Internet or other infrastructures that can for outside broadcasts. Tiaris, however, is only concerned about what goes on inside the home. "It doesn't matter to us how and when the broadcast arrives, but when it does, we can send it throughout the house so the video won't skip, while simultaneously delivering ordinary information to other devices," says Kopelman.

The lack of adequate external bandwidth means that service providers need to use alternative transmission methods, some of which are based on personal video recorder (PVR) devices, such as the ones built by TiVO Inc (Nasdaq: TIVO) and ReplayTV Inc., that transmit television broadcasts, and include hard drives that can store broadcasts for later viewing, or even halt live broadcasts and restart them a few minutes later

Kopelman says, "Communications providers will exploit the same storage volume PVR offers them to stream content to devices in advance. When a cable company offers new movies on pay-per-view, it can be assumed there will be some movies most viewers will want to watch, so the cable company can transmit them to the customers' homes in advance, so they'll be on the customers' diskettes ready for viewing when they want. We can enable the viewer to watch the broadcast, transmitted from the diskette, on several televisions simultaneously, which cannot be done today. Even if the movie was not loaded in advance, and you insist on having the external narrow bandwidth, it would be similar to media streaming on the Internet. The broadcast does not begin immediately, but is transmitted in packets to your computer, so it appears to be a live broadcast. PVR does the same thing. Over 1 million top-set boxes with their own storage space will be sold in the US by the end of the year

Tiaris stresses that the rate their components can offer – 100 Mbps – is not limited to video streaming needs for television, but can be used to transmit to several devices simultaneously.

Isn't it odd that you aren't approaching the hotel and conference halls market, which need multiple viewing of the same content?

Kopelman: "That market is saturated with companies. We are a young company and don't want to go there. We are concentrating on the household market."

Competition will come from two directions: first generation companies, which first sought only to hook up computers, are now trying to improve their systems to make them good enough for video streaming; and companies such as Tiaris, which are starting from scratch. Kopelman admits there are many Israeli and non-Israeli companies in the field, but claims that Tiaris has a technological advantage over the competition, as well as good positioning gained from the pre-seed connections fostered with potential customers.

By the end of the year, Tiaris plans to complete development of its beta product and hold tests among several customers. The intention is to increase staff at the Israeli development center to 40 from its current 25, while continuing marketing from Boston, where Kopelman will move at the end of the month.

Tiaris completed a $9.5 million financing round last week, a handsome figure these days. The round proves the importance of networking. Kodiak Venture Partners of the US invested over half the sum in the first round. Kodiak's biggest investor is Goldman Sachs, which is also the biggest investor in the Cedar Fund. The attorneys of Tiaris, Cedar Fund and Kodiak Venture Partners are partners and participated in the last financing round.

Published by Israel's Business Arena on 20 August 2001